BOARD OF DIRECTORS / TRUSTEES

 governing body of a corporation

 Has the sole authority to determine policies, enter into contracts, and conduct the ordinary
business of the corporation within the scope of its charter (with the exception only of some powers
expressly granted by law to stockholders (or members, in case of non-stock corporations))
 Has the power and the responsibility to decide whether the corporation should enter into a
contract that will bind the corporation
 Contracts intra vires entered into by the board of directors are binding upon the corporation and
courts will not interfere unless such contracts are so unconscionable and oppressive as to amount.
 supreme authority in matter of management of the regular and ordinary business affairs of the corporation
 However, this authority does not extend to the fundamental changes in the corporate charter such
as amendments or substantial changes thereof, which belong to the stockholders as a whole
 Doctrine of Centralized Management (Sec. 22, RCC): The BOD/T shall exercise the corporate powers,
conduct all business, and control all properties of the corporation
 Business Judgment Rule: under the business judgment rule, questions of policy and management are
left to the judgment of the officers and directors of a corporation, and the courts have no authority to
substitute the board’s judgment with theirs
 Term: BOD - 1 year, BOT - 3 years

QUALIFICATIONS  must own at least 1 share in their own names (director) or a member (trustee)
 A director who ceases to own at least 1 share or a trustee who ceases to be a
member of the corporation shall cease to be as such.
 The by-laws may provide for additional qualifications and disqualifications.
However, it may not do away with the minimum qualifications and
disqualifications.

DISQUALIFICATIONS  Within 5 years prior to election or appointment, the person was convicted by
final judgment
o Of an offense punishable by imprisonment for a period exceeding 6
years
o Violation of the Corporation Code
o Violation of the Securities Regulation Code
 Found administratively liable for any offense involving fraud acts
 By a foreign court or equivalent foreign regulatory authority for acts,
violations or misconduct similar to disqualifications under the Code
 Such other disqualification that may be provided in the by-laws

ELECTION  Majority of the outstanding capital stock, whether in person or by written proxy,
must be present at the election of the directors; or majority of members entitled
to vote, in the case of a non-stock corporation. If the required quorum is not
obtaining, the meeting may be adjourned
 On the request of any voting stockholder or member, the election may be held
by ballot otherwise viva-voce would suffice
 The candidates receiving the highest number of votes shall be elected

METHOD OF VOTING 1. Straight Voting - the number of votes a stockholder gets is equivalent to the
number of shares held (for each position)
2. Cumulative Voting
a. For one candidate - give a candidate as many votes as the number of
directors to be elected multiplied by the number of his shares
b. By distribution - distribute among the candidates the total votes
available (number of directors to be elected multiplied by the number
of his shares)
 Stock corporation: all methods are allowed
Non-stock corporation: generally, straight voting but may exercise cumulative
voting if expressed in by-laws

REPORTING ELECTION
REQUIREMENTS  Within 30 days after the election
 Secretary and other officer shall submit to the SEC
 Names, nationalities, shareholdings, and residence addresses of the directors,
trustees and officers elected

NON-HOLDING OF ELECTION
 Within 30 days
 To be submitted to the SEC
 New date for election (shall not be later than 60 days from the scheduled date)
 If no new date has been designated, or if the rescheduled election is likewise
not held, the SEC, may summarily order that an election be held

VACANCY
 Within 7 days from knowledge thereof
 Secretary / director / trustee / officer / legal heirs shall report to SEC

REMOVAL  General rule: Removal of directors or trustees may be with or without cause.
 By-laws may provide for causes or grounds for removal of a director, subject
to the following limitations:
o A director representing the minority may not be removed except for
those causes
o A director not representing the minority may be removed even without a
cause
 The SEC is now empowered to motu propio and after due notice and
hearing, order the removal of a director or trustee elected despite the
disqualification, or whose disqualification arose or is discovered subsequent
to an election

REQUISITES OF A VALID 1. Should take place at a general or special meeting duly called for that purpose
REMOVAL 2. Vote of ⅔ of the outstanding capital stock or members entitled to vote
3. Previous notice to the stockholders or members of the intention to propose
such removal at the meeting either by publication or written notice

COMPENSATION  General rule: Directors are not entitled to receive any compensation
 Exceptions: ◻ reasonable per diems ◻ as provided in the by-laws
◻ upon majority vote of the SHs ◻ they are performing functions other than
that of a director
Limit: cannot exceed 10% of the net income before tax during the preceding
year

REPLACEMENT OF  Director’s term is expired but is not replaced since there was no election held,
HOLD-OVER DIRECTORS he can continue to function in a holdover capacity.
 If he resigns, the SHs will be the one to replace him even if the remaining
directors continue to constitute a quorum

CORPORATE  holds personally liable corporate directors found guilty of gross negligence or
OPPORTUNITY bad faith in directing the affairs of the corporation, which results in damage or
DOCTRINE injury to the corporation, its stockholders or members, and other persons
 A director cannot appropriate to himself an opportunity which in fairness
belongs to the corporation.
  Ratification: at least ⅔ of the outstanding capital stock
 Elements to determine whether a prohibited corporate opportunity exists:
 The corporation is financially able to exploit the opportunity
 The opportunity is within the corporation’s line of business
 The corporation has an interest or expectancy in the opportunity
 By taking opportunity for his own, the corporate director, trustee or
officer will consequently be placed in a position inimical to his duties
to the corporation
 ACQUIRING ADVERSE INTEREST ON A MATTER REPOSED IN HIM IN
CONFIDENCE:
 The director liable should account for profits. This is not subject to
ratification.

SELF-DEALING  a contract entered into by a director with his own corporation: voidable in the
DIRECTORS corporation’s option
 except:
a. Presence is not necessary to constitute quorum
b. Vote is not necessary for the approval
c. Contract is fair and reasonable
d. For corp vested with public interest: Approval of:
i. ⅔ of the entire membership of the board
ii. Majority of the independent directors
 If (a) and (b) are absent: voidable subject to ratification of ⅔ of the outstanding
capital stock:
 in a meeting called for that purpose
 with full disclosure of the adverse interest of the director
 contract is fair and reasonable
 If self-dealing director own substantially all shares of stocks, reasonableness
of the transaction shall be determined
 Self-dealing officers: generally voidable, except is the contract was
previously authorized by the BOD

INTERLOCKING  a director in one corporation who deals or transacts with another corporation
DIRECTORS of which he is also a director (dual agency)
 General rule: valid if reasonable
 Exception:
 If there is fraud
 If the interest in one corporation is substantial (> 20%) and in the other
merely nominal, the contract is voidable at the latter corporation’s option

EMERGENCY BOARD  When the vacancy prevents the remaining directors from constituting a quorum
 Emergency action is required to prevent grave, substantial and irreparable loss
or damage to the corporation, the vacancy may temporarily filled from among
the officers of the corporation by unanimous vote of the remaining directors or
trustees
 The action shall be limited to the emergency action necessary
 The term shall cease (whichever comes earlier)
o Within a reasonable time from the termination of the emergency
o Upon election of the replacement director or trustee
 Notify the SEC within 3 days from the creation of the emergency board

EXECUTIVE COMMITTEE  not less than 3 members of the Board, to be appointed by the Board
 acts by majority vote of all of its members, on such specific matters within the
competence of the board, as may be delegated to it in the by-laws or by a
majority vote
 have no power to:
 ◻ approve any action for which SHs’ approval is required ◻ fill-up vacancies
in the board
◻ amend or repeal the by-laws or adopt new by-laws ◻ distribute cash
dividends to the SHs
◻ amend or repeal any resolution of the board by its express terms is not so
amendable or repealable
 The BOD may create special committees of temporary or permanent nature and
to determine the members’ term, composition, compensation, powers, and
responsibilities
 Audit Committee - preferably have accounting and finance backgrounds,
1 should be an independent director (Chair) and another with audit
experience
 Nomination Committee - 1 should be an independent director; review
and evaluate the qualifications of all persons nominated to the Board and
other appointments
 Compensation or Remuneration Committee - 1 should be an
independent director; establish a formal and transparent procedure for
developing a policy on remuneration of directors and officers

FILLING UP VACANCIES

Cause Who will fill the vacancy? When election will be held

Same day of the meeting authorizing the

Removal Stockholders
removal

No later than the day of such expiration at

Expiration of the term Stockholders
a meeting called for that purpose

BOD - if they still constitute a

Other causes (death, quorum No later than 45 days from the time the
resignation, abandonment) Stockholders - if BOD no longer vacancy arose
constitute a quorum

Increase in the number of Same day of the meeting authorizing the

Stockholders
Directors increase in the number of Directors

REMEDIES AGAINST ERRING DIRECTORS/OFFICERS

DERIVATIVE  an action based on injury to the corporation

 to enforce a corporate right
 effective remedy of the minority against the abuses of management
 the corporation itself is joined as a necessary party, and recovery is in favor of
and for the corporation
 Reasons for disallowing:
 conflict with the separate corporate entity principle
 prior rights of the creditors may be prejudiced
 conflict with the duty of the management
 wasteful multiplicity of suits
 confusion in ascertaining the effect of partial recovery by an individual on the
damages recoverable by the corporation for the same act
REPRESENTATIVE /  one or more members of a class sue for themselves as a class or for all to whom
CLASS the right was denied, either as an individual action or a derivative suit

INDIVIDUAL /  for direct inquiry to his rights, such as denial of his right to inspect corporate books
PERSONAL and records or pre-emptive rights